Houston Exploration Reports 2005 Results
The Houston Exploration Company (NYSE: THX) reported full-year 2005 net income of $105.2 million, or $3.62 per diluted share. This compares with $162.8 million of net income, or $5.44 per diluted share, reported in 2004. Cash from operations before changes in operating assets and liabilities totaled $469.6 million in 2005 compared with 2004's $500.5 million.
Year-end 2005 proved reserves totaled a record 861 billion cubic feet of natural gas equivalent (Bcfe), up 9 percent from 2004. Total production for 2005 was 114.3 Bcfe, or 313 million cubic feet of natural gas equivalent per day (MMcfe/d), down from the 124.0 Bcfe, or 339 MMcfe/d reported in 2004. This decline was primarily due to production shut-ins and delays associated with last fall's hurricanes in the Gulf of Mexico which impacted the company's annual production volume by 10.6 Bcfe, or approximately 30 MMcfe/d.
The company's average natural gas sales price for 2005 was $7.71 per thousand cubic feet (Mcf), compared to $5.78 per Mcf in 2004, an increase of 33 percent. After accounting for all hedging activities, the company's average realized price for 2005 natural gas sales was $5.21 per Mcf up from $5.17 per Mcf reported during the prior year. Crude oil prices averaged $48.43 per barrel for the year compared with $36.85 per barrel reported during 2004, an increase of 31 percent.
Revenues for the year totaled $621.5 million, compared to $650.4 million in 2004. This decline reflects the decrease in natural gas production, as partially offset by the slight increase in average realized gas price. Included in the company's 2005 revenues are:
* $244.6 million of net realized losses associated with the settlement of hedge contracts (excluding $20.6 million in losses associated with hedge related production shortfalls that will be deferred until the first quarter 2006); and * $19.9 million of unrealized losses associated with ineffective hedge contracts that have yet to be settled.
Lease operating, transportation and severance tax expenses for 2005 totaled $0.85 per thousand cubic feet of natural gas equivalent (Mcfe) versus the $0.65 per Mcfe reported during 2004. Depreciation, depletion and amortization and asset retirement accretion expenses for the year were $2.63 per Mcfe compared to $2.18 per Mcfe in 2004. Net general and administrative expenses were $0.34 per Mcfe in 2005 compared to $0.27 per Mcfe in 2004.
The company's 2005 capital program totaled a record $743.3 million, including $197.7 million used for acquisitions. Exploration accounted for $112.6 million, development for $366.9 million, leasehold and acquisition costs were $66.1 million, and the company had asset sales of $1.9 million.
2005 Snapshot: * The company closed the year with record proved reserves, up 9 percent over 2004 to 861 Bcfe. Onshore reserves increased 23 percent to 616 Bcfe. * The company drilled a record 336 wells at an overall success rate of 89 percent. * Onshore the company drilled a record 321 wells at a success rate of 89 percent, and production for the region averaged 188 MMcfe/d compared with 186 MMcfe/d in 2004. * Offshore the company drilled 15 wells, of which 80 percent were successful. Of these, the company was three-for-four on deep-shelf exploration for a success rate of 75 percent. * The company enhanced its South Texas operations, acquiring assets for $159 million, which totaled an estimated 62 Bcfe of proved reserves at year-end 2005. The increase in activity will take the region's rig count up from six to seven for most of 2006. The company's drilling inventory exceeds three years in South Texas. * The company also completed several tactical acquisitions in East Texas for $39 million, which had estimated total proved reserves of 38 Bcfe at year-end 2005. In March 2005, prior to the initial acquisition, the region was producing 2 MMcfe/d. As a result of the acquisitions and the company's subsequent development efforts, production grew to 8 MMcfe/d by year-end 2005. Houston Exploration has a drilling inventory of more than three years on these assets. * In the Rockies, the company finalized two joint-venture agreements with private operators in Utah, and in so doing, increased its rig count in the area from one to three and has plans to add a fourth rig by yearend. In Colorado, the company saw its first production from wells drilled in the DJ Basin, which are currently producing 3.1 MMcfe/d, net, with approximately 60 wells placed online. The company's Rocky Mountain drilling program currently exceeds three years. * The company's gas production was 83 percent hedged in 2005, which did not allow it to take advantage of the higher prices that occurred during the last half of the year. This resulted in a hedge loss of $265 million for 2005, $116 million of which occurred during the fourth quarter 2005. * The company announced its intent to explore the sale of its Gulf of Mexico assets and concentrate on its onshore operations. At year-end 2005 the Gulf of Mexico region accounted for 245 Bcfe, or 28 percent of the company's total proved reserves. * In conjunction with the possible sale of the company's Gulf of Mexico assets, the company's board of directors approved a $200 million stock buy-back program, subject to market and other conditions. Fourth Quarter 2005 Summary:
During the fourth quarter 2005 the company reported net income of $19.8 million, or $0.68 per diluted share. This compares with $34.8 million, or $1.21 per diluted share in the fourth quarter 2004. Cash from operations before changes in operating assets and liabilities (a non-GAAP measure) totaled $71.9 million for the fourth quarter 2005 versus $121.4 million during the similar 2004 period.
Fourth quarter 2005 production totaled 26.3 Bcfe, or 285 MMcfe/d, down from fourth quarter 2004's rate of 30.3 Bcfe or 329 MMcfe/d. Quarter-over- quarter, 2005's fourth quarter received the brunt of the impact from the hurricane shut-ins and delays, which accounted for the majority of the decline.
Houston Exploration realized an average natural gas sales price for the fourth quarter 2005 of $10.39 per Mcf, compared to $6.37 per Mcf for the fourth quarter 2004. After accounting for all hedging activities, the company's fourth quarter 2005 average realized price for natural gas sales was $5.69 per Mcf compared with $5.24 per Mcf for the fourth quarter 2004. Fourth quarter 2005 crude oil prices averaged $54.02 per barrel versus $42.05 for the comparable quarter in 2004.
Revenues for the fourth quarter totaled $154.6 million, compared to $163.0 million in 2004, as production declines more than offset improvements in average realized prices. The company's fourth quarter 2005 revenues include:
* $143.9 million of net realized losses associated with the settlement of hedge contracts (excluding $20.6 million in losses associated with hedge related production shortfalls that will be deferred until the first quarter 2006); and * $27.4 million of unrealized gains associated with ineffective hedge contracts that have yet to be settled.
Lease operating, transportation and severance tax expenses for the fourth quarter 2005 totaled $0.96 per Mcfe versus the $0.69 per Mcfe reported during the fourth quarter 2004. Depreciation, depletion and amortization and asset retirement accretion expenses for the fourth quarter 2005 were $3.10 per Mcfe compared to $2.35 per Mcfe in the fourth quarter 2004. Fourth quarter 2005 net general and administrative expenses were $0.41 per Mcfe versus the $0.38 per Mcfe reported for 2004's fourth quarter.
Houston Exploration has prepared the following information to assist with understanding the company's estimated financial results and near-term performance based on current expectations.
The company's current guidance figures assume full Gulf of Mexico operations for the first quarter 2006.
First Quarter 2006 Costs ($/Mcfe) Estimate - Lease operating expense $0.57 +/- - Severance tax $0.16 +/- - General and administrative, net $0.26 +/- - Transportation $0.10 +/- - Depreciation, depletion and amortization and asset retirement accretion $3.09 +/- - Interest, net $0.26 +/-
In light of the ongoing Gulf of Mexico sale process, the company does not intend to update or reaffirm its previously announced full-year 2006 guidance at this time.
Three Months Ended Twelve Months Ended December 31, December 31, 2005 2004 2005 2004 Reconciliation of Non-GAAP Measures: (in thousands) (in thousands) Cash from operations before changes in operating assets and liabilities $71,874 $121,443 $469,590 $500,540 Plus changes in operating assets and liabilities 4,654 14,746 (9,081) 26,601 Net cash provided by operating activities $76,528 $136,189 $460,509 $527,141 2005 Reserve Reconciliation: Natural Gas (Bcf) Offshore Onshore Total 12/31/04 Balance 250.383 498.731 749.114 Production (37.800) (68.009) (105.809) Additions 26.518 108.818 135.336 Sales --- (1.066) (1.066) Purchases --- 81.704 81.704 Revisions (42.613) (23.592) (66.205) 12/31/05 Balance 196.488 596.586 793.074 Oil & NGLs (MMbbls) 12/31/04 Balance 6.849 .486 7.335 Production (1.315) (.102) (1.417) Additions 1.274 .121 1.395 Sales --- (.119) (.119) Purchases --- 3.000 3.000 Revisions 1.210 (.113) 1.097 12/31/05 Balance 8.018 3.273 11.291 Natural Gas Equivalent (Bcfe) 12/31/04 Balance 291.477 501.647 793.124 Production (45.690) (68.621) (114.311) Additions 34.162 109.544 143.706 Sales --- (1.780) (1.780) Purchases --- 99.704 99.704 Revisions (35.353) (24.270) (59.623) 12/31/05 Balance 244.596 616.224 860.820 Reserve Statistics Reserve Growth -16% 23% 9% Reserves, Percent Gas 80% 97% 92% Production, Percent Gas 83% 99% 93% 2005 Reserve-to-Production Ratio (Non-GAAP Measure): Reserve-to-production is defined as year-end 2005 total proved reserves divided by year-to-date production volume. Offshore Onshore Total Reserves (Bcfe) 244.596 616.224 860.820 Production (Bcfe) 45.690 68.621 114.311 Life (Years) 5.4 9.0 7.5 2005 Reserve Replacement Ratio (Non-GAAP Measure): Reserve replacement ratio is defined as year-to-date production divided by total additions, net of revisions. Offshore Onshore Total Additions (Bcfe) 34.162 109.544 143.706 Purchases (Bcfe) --- 99.704 99.704 Revisions (Bcfe) (35.353) (24.270) (59.623) Net Additions (Bcfe) (1.191) 184.978 183.787 Production (Bcfe) 45.690 68.621 114.311 Replacement Ratio (3%) 270% 161% Note: All reserves are fully engineered by third-party consultants.
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